In its 20 year history, the home appliances produced by the Chinese company Haier has made it a household name. With a market share exceeding giants such as General Electric and Bosch-Siemens, Haier is now increasingly recognised worldwide. Crucial to Haier's success has been its quality work.
In the mid-1980s production at the recently completed Haier factory in Qingdao suffered from quality problems. The common belief among employees seemed to be that substandard products could simply be sold at a discount. The employees were eligible for those discounts and the incentives for making perfect products were somewhat weak. It all ended with a bang.
This defining moment in the Chinese home appliance maker's history occurred when its CEO, Mr. Zhang, ordered the destruction of some 70 defective washing machines straight from the assembly line. For the stunned employees watching the incident, the message was painfully clear: Substandard products have no place in Haier.
Times have changed
Today, Haier is on Forbes' Magazine's top hundred list of the world's most recognised brands. In Manhattan, Haier is a powerful symbol of success with its own landmark building, The Haier Mansion. Haier is the most valuable brand in China, yet the company has ambitious plans. In what has become a Chinese business trademark, it has an almost unbelievable annual grow thrate -- revenues have surged 70 per cent annually and the company earned almost USD 10 billion in 2003.
Last year, Haier was the world's second largest producer of household electric appliances after Whirlpool, followed by General Electrics and Bosch-Siemens, companies that have been around for up to a century.
How does a company accomplish suchachievements?
Everyone at Haier will say that the key to their success is uncompromising quality standards. Haier's Quality Manager Liu Xiangyang says, "The first seven years we were working very hard with quality improvement, getting the basics right. We did not expand further until several quality parameters were met. Then, a milestone was reached when the 400 different standards that applied to our operations were reviewed and cut back to just a few. We decided to adopt ISO 9001 standards, which form a basic foundation for quality across all aspects of our operations. Thi initiative also gave us all a common language and understanding, making it easier to communicate about our quality improvement work."
He continues: "We opted for certification of our quality management system to the ISO 9001 standard in part because we believed weneeded a quality management system that was more suitable for international operations.
When we got our first certificate in 1996 it gave us a chance to get an overview of our status. From then on, we worked on improvements in particular areas. And in 1995 we entered the world market, confident that we had what we needed."
According to Xiangyang, the decisive factors in choosing DNV for the certification of the quality management system were its long international history, professional auditors that were keen to deliver quality and customer oriented services. He adds, "DNV is a good partner for continuous improvement work that goes beyond the ISO standards work."
Drawing business development ideas from the continual improvement work
"The certification helped us work with quality in a broader sense. It is not something that applies exclusively to our end products. When we looked at our processes and looked for trends that needed attention, we noticed several things that we were able to directly translate into business opportunities. For instance, when we saw a slump in sales of washing machines during the summer, we introduced a smaller, lighter and less electricity- and water-consuming machine. It became so popular that we now sell more washing machines in China in the summer than in any other period." When reviewing their after sales processes, Haier recognised the potential for improvements and soon after became the best company in China with regard to service, delivery and general customer service. Seizing that opportunity quickly put Haier ahead in the Chinese market. Haier's growth philosophy is to always have a strong foundation before seeking steady growth, a strategy that has enabled Haier to achieve sustainable growth.
Going the other way
At present there is a lot of talk about offshoring and western companies outsourcing manufacturing work to China. By contrast, Haier has added factories in the USA and Pakistan, bringing their total number of international facilities up to 22.
When asked about the impact of China's entrance into the World Trade Organization, Liu Xiangyang is excited to have the opportunity to compete in the international markets on a more even field. However, he acknowledges that it will be a challenge. "It is a bit like going from local championships to the Olympics," he laughs.
Unlike the Olympics, win-win situations are possible. Recently, the Japanese electronics company Sanyo signed a comprehensive alliance with Haier. Sanyo is now building a USD 30 million factory in Qingdao to make compressors for Haier's home appliances. And Sanyo will use Haier's sales network to market its digital products in China. Similar agreements will create opportunities for Haier abroad, while the company will continue to attract more business to the Chinese market.
But for Haier, thinking big comes natural. While China is a vast market, Haier will continue to work its way onto the international markets, so don't be surprised if a Haier product comes to a kitchen or bathroom near you.